Experian report shows average monthly payments remain stable amid rising interest rates

With affordability remaining top of mind throughout the automotive industry, new data shows the average loan amount for new and used vehicles decreased in Q3 2023, an optimistic sign that things are continuing to level out for vehicle shoppers.

According to Experian’s State of the Automotive Finance Market Report: Q3 2023, the average new vehicle loan amount was $40,184, down from $41,543 in Q3 2022. By comparison, from Q3 2021 to Q3 2022, the average new vehicle loan amount increased $3,698. On the used vehicle side, the average loan amount was $27,167, down $1,517 year-over-year.

In addition to decreases in average loan amount, the average monthly payment for new and used vehicle loans only experienced modest increases. The average monthly payment for a new vehicle only increased $25 year-over-year, reaching $726, while the average monthly payment for a used vehicle only increased $4 to $533 over the same period. The average interest rate for a new vehicle was 7.03% in Q3 2023, up from 5.26%. The average interest rate for a used vehicle was 11.35%, up from 9.38% last year.

“While we’ve seen the average loan amount for new and used vehicles rise over the better part of the last three years, it’s a welcome sight to see average vehicle loan amounts decrease,” said Melinda Zabritski, Experian’s Head of Automotive Financial Insights. “Once you factor in monthly payments remaining relatively stable despite rising interest rates, the industry seems to be heading in a positive direction, especially with consumers having more options available to them during the financing process.”

New vehicle shoppers continue to opt for shorter-term loans

In Q3 2023, shoppers financing a new vehicle continued to opt for shorter loan terms. For example, 13.40% of new vehicle loans had terms in the 1- to 48-month category, up from 9.99% the previous year. Similarly, new vehicle loans with 49- to 60-month terms reached 17.16% (up from 16.50% in Q3 2022) and new vehicle loans with 61- to 72-month terms reached 38.65% (up from 36.67% in Q3 2022). Meanwhile, new vehicle loans with 73- to 84-month terms decreased from 35.11% in Q3 2022 to 29.15% this quarter.

Much of the shift toward shorter-term loans can be attributed to new vehicle shoppers securing lower interest rates. For instance, loans up to 48 months offered an average interest rate of 4.03% in Q3 2023, while the average rate for 49- to 60-months was 5.67%, followed by 61- to 72-months at 7.24%, 73- to 84-months at 8.80%, and 85+ at 8.81%.

“With interest rates remaining at elevated levels, it’s not unexpected to see consumers lean towards shorter terms considering the lower interest rates offered, particularly for new vehicles,” Zabritski continued. “With most vehicle shoppers keeping monthly payments top of mind, it’s important for lenders to help consumers identify vehicle financing options that are within their budgets.”

Captives experience significant growth in the new vehicle market

Captives grew significantly in Q3 2023, comprising the majority of total financing market share at 30.43%, up from 21.55% in Q3 2022. Meanwhile, total market share for banks decreased from 27.34% last year to 25.17% this quarter and credit unions went from 29.16% to 23.11% year-over-year. They were followed by finance companies (12.45%) and BHPH/others (8.85%).

It’s notable that captives also gained market share for new vehicle financing in Q3 2023, coming in at 59.18%, from 44.74% in Q3 2022, and banks trailed behind at 22.21% this quarter, a decrease from 25.85% last year. Though, credit unions saw a considerable decline from 24.38% to 13.18% year-over-year, followed by finance companies (4.72%) and BHPH/others (0.72%).

Additional findings for Q3 2023:

• Credit unions made up the largest market share for used vehicles at 30.30% in Q3 2023, followed by banks (27.31%), finance companies (18.05%), BHPH/others (14.74%), and captives (9.60%).

• The average loan term for a new vehicle went from 69.75 months in Q3 2022 to 68.26 months in Q3 2023, and the average loan term for a used vehicle decreased from 68.02 months to 67.57 months in the same time frame.

• The market continues to grow in prime (45.90%) and super prime (22.82%), comprising over 68% of total financing in Q3 2023.

• 30-day delinquencies reached 2.33% in Q3 2023, and 60-day delinquencies reached 0.91%.

To learn more, watch the entire State of the Automotive Finance Market Report: Q3 2023 presentation on demand.